If the Riskfree Interest Rate Is 5%, the Market Price

question 12

Multiple Choice

If the riskfree interest rate is 5%, the market price of risk is 6%, and the beta is 0.5, then, according to the classical single-factor CAPM, what is the equilibrium expected total return for investment in the asset in question?

• A) 3%
• B) 6%
• C) 8%
• D) 11%
• E) 17%

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Definitions:

Fixed Cost

Costs that do not vary with the volume of production or sales, such as rent, salaries, and insurance.

Relevant Activity Base

A factor that directly influences the costs incurred during a business activity, used for allocating costs in activity-based costing.

Decision-making Needs

The requirement for relevant, timely, and accurate information to make informed choices in business operations and strategies.

Variable Costs

Expenses that fluctuate in proportion to activity levels within a business.